Standing Committee D

[Mr. Eric Illsley in the Chair]

Commonhold and Leasehold Reform Bill [Lords]

Clause 114 ordered to stand part of the Bill.

Clause 115 - Premises with resident landlord

William Cash: I beg to move amendment No. 61, in page 58, line 29, after 'units', insert:
'or following the conversion for 10 or more years before the date hereof''.'.
 Clause 115 amends section 10 of the Leasehold Reform, Housing and Urban Development Act 1993, which exempts from the enfranchisement provisions premises that were converted into four or fewer flats, where the landlord or an adult family member occupies one of the flats as their only or principal home for at least 12 months. The clause provides that that exemption will apply only if the landlord has owned the freehold since before the conversion. Where the freehold of the premises is held on trust, the exemption will apply only where at least one of the relevant persons who occupies one of the flats as their only or principal home for at least 12 months had also been a beneficiary of the trust since before the conversion. 
 There seems to be a minor mistake on the amendment paper, although I have no idea how it happened or who is responsible. The amendment refers to line 29, but it is obvious from the meaning that it should refer to line 56 of the Bill. I hope, subject to your ruling, Mr. Illsley, that that will make no material difference. 
 The important point is that clause 115(2), which amends section 10, states: 
''the same person has owned the freehold of the premises since before the conversion of the premises into two or more flats or other units'', 
and the amendment would add the words, 
''or following the conversion for 10 or more years before the date hereof''.

Sally Keeble: In drafting the provision, the Government had to balance competing ideas from landlords—particularly resident landlords—and the strong views of leaseholders.
 We have received many complaints about resident landlords who abuse their privileged position. During the consultation process, we received several representations to the effect that the exemption from 
 the right of enfranchisement should be abolished completely for resident landlords, which would have meant that they had no rights in that regard. Our view was that the exemption should be restricted to those who sub-divide their homes into flats and continue to live there. Many resident landlords acquire the freehold when they purchase their flat, or even afterwards, and we see no reason why they should be put in a privileged position. The amendment would retain that privilege for those with the good fortune to have held it for an extended period. We cannot accept that and I ask the hon. Gentleman to withdraw the amendment.

William Cash: In the circumstances I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 115 ordered to stand part of the Bill. 
 Clause 116 ordered to stand part of the Bill.

Clause 117 - Abolition of Residence Condition

Question proposed, That the clause stand part of the Bill.

William Cash: The clause lays out the requirements for the abolition of the requirement that at least half of the participating tenants should have occupied their flats for the 12 months prior to the claim to an enfranchisement being made, or for three years in the previous 10.
 Collective enfranchisement is a right that should be given to home owners. It is a right to restrict the ability of absentee lessees to acquire the freehold. Without a residence condition, although all the flats in a block might be owned by foreign companies or for investment purposes, it would be possible to qualify to purchase the freehold. Section 5(5) and (6) of the Leasehold Reform, Housing and Urban Development Act 1993 would not prevent that. Those provisions would prevent a single speculator from obtaining the right to enfranchise by acquiring three or more flats. However, without a residence condition those provisions would not prevent a combination of two or more speculative investors from enfranchising against the wishes of the residents. 
 The provisions of the 1993 Act that I mentioned are not sufficient to prevent speculation. It is important to remember that the residence condition does not have to be satisfied by all the participating tenants, but only by half of them. If that is thought to be too restrictive, we think that it would be better to alter the residence condition than to abolish it. The requirements as to length of residence could be reduced to overcome any difficulties caused by flats changing hands or the problems of expatriate workers. If necessary, the requirement that the lessee occupy the flat as their only or principle home could be replaced by a straightforward requirement that the lessee should 
 occupy the flat as a residence. Such a requirement would be satisfied by lessees with two homes and would not be capable of exploitation by landlords. 
 Perhaps there is concern that landlords are resorting to company lets to deprive genuine residential occupiers of the right to enfranchise; that type of abuse could be made easier to prevent. The legislation already provides for the case of a lease owned by trustees, where the beneficiary under the trust resides in the flat. A similar provision could be introduced allowing the residence condition to be satisfied where the lessee is a company or corporation that owns the flat as nominee for the occupier. Accordingly, any legitimate concerns could be met by amending the residence condition. It would be wrong to abolish it.

Sally Keeble: The hon. Gentleman has carefully outlined concerns about the abolition of the residence test. I shall make two general points before dealing with the details. We have built in safeguards, to prevent the abuse of the enfranchisement process. Also, the key principle when considering the eligibility of leaseholders to enfranchise should be the extent of their stake in the property rather than the length of residence, which is always difficult to determine.
 We recognise that abolishing the residence test could open the door to investors, rather than to individual home owners. However, the test has proved to be the greatest barrier to groups of leaseholders who wish to enfranchise. Because enfranchisement of a block of flat is a collective right, the ability of leaseholders to acquire the freehold of their homes is dependent on their circumstances and on the ability of other leaseholders in the block to meet the necessary conditions. If a significant number of flats have been sublet or have recently changed hands—in some parts of the country, there is a large turnover of flats and many are sublet—the legitimate aspirations of leaseholders can be frustrated. Moreover—this applies equally to leasehold houses and to lease renewals—the residence test excludes deserving categories of leaseholders from their rights and is thus open to manipulation or abuse.

Shona McIsaac: I shall introduce another aspect of that argument later, but as my hon. Friend has mentioned it, I shall signal my intention. I have a number of constituency cases—for example, elderly people who, because of failing health, may have to go into hospital or into care—whom we would assume had a legitimate right to enfranchise, but who are being told by landlords and landowners that they do not have that right because they no longer fit the residence test. The abolition of the test will assist some of my constituents. Enfranchisement will be vital to them when they have to face the costs of care.

Sally Keeble: My hon. Friend makes an important point about how hard it can be to establish something as simple as residence. Another example would be a leaseholder buying a flat for his own occupation who had to rent out the house that he had been living in because he was unable to sell it. That often happens in
 some parts of the country when the property market gets into difficulty, as it did some years ago. Other examples are a leaseholder whose main home is in the country but who has a pied-a-terre in town—we should all probably declare an interest in this subject—and leaseholders who work abroad but who have a flat for when they return home. None of them could properly be classed as speculators, although people might not regard them as residents.

Bill Wiggin: The purpose of the amendment, which would remove the clause, is to ensure that people who already own the freehold, whether or not they are resident, are not penalised financially. Will the Minister tell us what safeguards are in place? The examples that I have heard suggest that people want to enfranchise for financial gain, which implies that it is not necessarily a great deal for one party or the other. With fairness at the front of our minds, I wonder whether the Minister would touch on that.

Sally Keeble: I will deal with the safeguards. The residence test might seem to be an obvious safeguard, but it can be hard to establish residence. It is not the best safeguard on offer. I shall deal later with companies and some of the other factors involved.
 The residence test also excludes companies from exercising their rights, as a company cannot be said to reside in a flat or a house. It may seem a reasonable exclusion, but some landlords have adopted a policy of permitting leases to be assigned to a company, with a view to evading the requirements of leasehold law. It would obviously then be impossible for the leaseholders to enfranchise. We consider that the key principle when considering eligibility for leaseholders' rights should be the extent of their stake in the property rather than length of residence. None the less, we are concerned to avoid opportunities for short-term speculative gain. 
 In the case of collective enfranchisement, we are retaining an existing provision that prevents a person, or a group of associated companies, holding leases on more than two flats in the block from participating in collective enfranchisement proceedings. That should provide a safeguard against investors using the new rights to acquire whole buildings from others. 
 In the case of the individual rights of lease renewal for flats and enfranchisement of houses, the Bill provides that the leaseholder must have held a long lease for at least two years before he or she can exercise that right—so, rather than having a residence test, there is a test of the length of time for which the lease has been held, which I think deals with the hon. Gentleman's point.

Bill Wiggin: I am grateful to the Minister for her answer and would like to ask a further question. The Minister mentioned a landlord who will only lease properties to companies—purely for his own protection, so that they cannot be enfranchised. Does that not imply that if the situation alters, people who are happy to lease on the basis that they will not lose
 their freeholds will henceforth rent, and therefore a large number of cheap—perhaps ''cheaper'' is a better word—properties that are on the market as leaseholds will be withdrawn and people will be forced to rent?

Sally Keeble: The hon. Gentleman makes a fair point, but I find it hard to see how it would work. He suggests that a landlord would rent on a short-term basis a property on which a long lease had fallen due, rather than resell it. Some landlords might decide to do that, but I expect that the nature of the investment would be different and the landlord's decision as to whether to sell the property but retain a freehold interest or to let it and act as a letting agent would be made on a different basis. In the case of new developments, the developer would have to consider which option he preferred. As the law stands, he could still decide on leasehold. We expect that landlords will increasingly go for commonhold. It is hard to speculate. However, I do not believe that it was envisaged during the consultation that this provision would produce a switch from long leasehold to more conventional renting to shorter-term tenants.
 The provisions that we have included would provide a sensible balance between the need to avoid opportunities for short-term speculative gain, which has been a problem with leasehold in some areas, and the need to put an end to the unfair exclusion of certain leaseholders from the right to buy their freehold and to a longer lease. On that basis, I urge the Committee to vote that this clause should stand part of the Bill. 
 Question put and agreed to. 
 Clause 117 ordered to stand part of the Bill. 
 Clauses 118 to 121 ordered to stand part of the Bill. 
 Schedule 8 agreed to. 
 Clause 122 ordered to stand part of the Bill.

Clause 123 - Valuation date

William Cash: I beg to move amendment No. 62, in page 63, line 3, leave out from 'payable),' to end of line 4 and add—
'in paragraph 1(1), for the definition of ''the valuation date'' substitute—
''the valuation date'' means the date of service of the reversioner's counter-notice.'.

Eric Illsley: With this it will be convenient to take the following: Amendment No. 65, in Clause 131, page 64, line 30, leave out from 'lease),' to end of line 31 and insert—
'in paragraph 1, for the definition of ''the valuation date'' substitute—
''the valuation date'' means the date of service of the reversioner's counter-notice.'.
 New clause 10—Price payable by nominee purchaser— 
 'In Paragraph 2(1) of Schedule 6 to the 1993 Act, at the end insert—
 ''(d) a sum equivalent to the interest accruing at the base rate applied by the London clearing banks at the time to a principal sum which is equivalent to the aggregate sum of the values derived from paragraphs (a) to (c) above during the period between the valuation date and the date of completion of the transaction.''.' 
New clause 11—Premium payable by tenant— 
 'In paragraph 2 of Schedule 13 to the 1993 Act, at the end insert— 
 ''(d) a sum equivalent to the interest accruing at the base rate applied by the London clearing banks at the time to a principal sum which is equivalent to the aggregate sum of the values derived from sub-paragraphs (a) to (c) above during the period between the valuation date and the date of the completion of the transaction.''.'

William Cash: The clause deals with the valuation for the purchase price. Amendment No. 62 is designed to fix the valuation date at that of the service of the landlord's counter-notice, which seems a much more appropriate point in the process than the date of the service of the claim notice, because it is the point at which the second party engages in the process. As I said before, enfranchisement is a form of compulsory purchase.

Shona McIsaac: Does the hon. Gentleman agree that enfranchisement is not a form of compulsory purchase if the landlord is voluntarily disposing of the freeholds and the tenant is given first refusal, as they are with flats?

William Cash: That is a reasonable point. There are circumstances in which enfranchisement could be described as not compulsory. It generally could be described as such, but I agree that there are instances involving voluntary disposal where such a description would not apply.
 However, under standard compulsory purchase orders, the valuation date is the day on which the purchase is concluded. Whether the market is rising or falling, that is the only date that is fair to both parties—I think that that is reasonable. If the market is rising, the clause as drafted would be unfair to the reversioner, especially if the enfranchisers yielded to the obvious temptation to delay to postpone the day on which they would be obliged to find the purchase price. 
 Amendment No. 65 deals in the same way with the valuation date for the premium payable by the tenant for the new lease. 
 New clause 10 is designed to incorporate into the purchase price interest at the current bank base rate on the valuation figure. The Bill has been framed on the assumption that reversioners are more likely to delay than leaseholders. Consequently, the protection for the reversioner against enfranchisers who seek to exploit the system is little more than minimal. If the valuation date is the date of the service of the counter-notice, it will be in the interest of the enfranchisers to delay, since the price that they pay will not increase however much the market goes up. 
 Under the proposals, no interest is payable no matter how long the delay between the valuation date and the date of completion of the purchase. The Opposition argue that interest should be payable to discourage delay by the enfranchisers after the 
 valuation date, whether that date is the date of service of the counter-notice, as we think it should be, or that of service of the claim notice, as the Government propose. 
 Moreover, it is always disadvantageous to a seller to be kept from his money and it is in principle wrong, whether the market is rising or falling, since he is thereby prevented from devising an alternative investment for the money that he is entitled to receive for his compulsorily purchased property. 
 That summarises our arguments and I would be interested to hear the Minister's response.

Sally Keeble: Amendments Nos. 62 and 65 relate to the date that should be used to value the interest in a property to be acquired under the right to enfranchise or the right to a longer lease. Under existing law, the valuation date is the date on which the parties determine, by agreement or by reference to a leasehold valuation tribunal, the interest to be acquired by the purchaser. Although that sounds a reasonable formulation on the face of it and it has the advantage that the price is determined at the moment when the nature of the transaction has crystallised, there has been a good deal of controversy over exactly what it means in certain circumstances. That has generated the time-consuming and costly argument that our proposals are intended to avoid. We are therefore firmly of the view that the position should change.
 The Bill provides that the valuation date should be the date of the initial notice of claim. Amendments Nos. 62 and 65 instead provide that it should be the date of the landlord's counter-notice. In ordinary market conditions, the choice between these two dates should be of little significance. It will become so only if property prices are either rising or falling rapidly. It also depends how long it takes for the landlord to serve the notice. 
 The proposals in the Bill received the support of no less than 93 per cent. of those who commented on this issue during our consultations on the draft Bill—an unusually high proportion. However, in this as in all other matters relating to the Bill, we have been guided by the balance of the substantive arguments rather than by mere head counting. 
 The first consideration is that the date of the initial notice has been used as the valuation date for the enfranchisement of houses ever since the Leasehold Reform Act 1967, apparently without occasioning any real difficulty or controversy. The second is that the procedure for flats often takes longer than it needs to—I have referred to that. Indeed, many landlords have chosen to spin the proceedings out as much as possible with a view to persuading leaseholders to give up the enterprise altogether. 
 Since the market is more often on the rise than falling, aligning the valuation date with the date of the counter-notice would tend to give the landlord a further reason to delay the service of the counter-notice so as to take advantage of market conditions. If on the other hand, the valuation date is fixed as the date of the initial notice, as the Bill provides, the 
 landlord will be encouraged to proceed with all speed and, as a consequence, any movement of the market in the intervening period is unlikely to be material. We have therefore concluded that the valuation date provided for in the Bill is the right one. 
 New clauses 10 and 11 relate to the payment of interest. I appreciate the concern that, in a rising property market, landlords could be disadvantaged if the price is determined on the basis of prevailing values on the date of the initial notice but they do not receive the money until a later date. However, I do not think that it would be fair to provide a right to a payment that would effectively amount to interest on the purchase price between the date used to determine the price and the date of completion. Under the Bill, any disadvantage to landlords would depend on the movement in property prices and if they were static or declining there would be no disadvantage at all. 
 The solution is to ensure that the enfranchisement or lease renewal process is as quick as possible. The measures in the Bill are intended to reduce the scope for procedural delays and disputes over the price payable and, where there is disagreement, to speed up the dispute resolution process. 
 I hope that the hon. Gentleman will understand that we have carefully considered which arrangements are best. Consultations have been held on the arrangements and support for them is widespread. They fit in with existing practice and the normally prevailing circumstances of the market. On that basis, I ask him to withdraw the amendment.

William Cash: I appreciate that the Minister is presenting her arguments as reasonably as she can, but I am afraid that I must disappoint her, as I intend to divide the Committee on the matter.
 Question put, That the amendment be made:—
The Committee divided: Ayes 5, Noes 10.

Question accordingly negatived. 
 Clause 123 ordered to stand part of the Bill. 
 Clauses 124 to 126 ordered to stand part of the Bill.

Clause 127 - Replacement of residence test

William Cash: I beg to move amendment No. 63, in page 63, line 27, at end insert—
 '( ) For subsection (2)(b), substitute—
''(b) the tenant or, if the lease by virtue of which the tenant is a qualifying tenant is vested in trustees, an individual having an interest in the trust, has occupied the flat as his only or principal residence for at least twelve months at any time, whether or not he has used it also for other purposes.''.'.

Eric Illsley: With this we may discuss the following amendments: No. 64, in page 63, line 28, leave out '(2)(b)'.
 No. 66, in clause 136, page 66, line 2, at end insert 
'and has occupied it as his only or principal residence for at least twelve months at any time, whether or not he has used it also for other purposes'.

William Cash: The clause removes the previous requirement that tenants must satisfy a residence test to qualify for the right to acquire a new lease. It introduces a new requirement that they must have been qualifying tenants—that is, long leaseholders—for at least two years before they can exercise that right. That proposal is unreasonable, and the amendments deal with it.

Sally Keeble: We have been through some of the arguments on the abolition of the residence test before, but I shall go through them again. We recognise the concern that abolishing the residence test could open the door to investors rather than individual homeowners. The residence test, however, excludes deserving categories of leaseholders from exercising their rights and is open to manipulation and abuse. We discussed some of those categories under a previous clause.
 The key principle in considering a person's eligibility to leaseholder rights should be the extent of their stake in the property, not their length of residence. Although residence may seem simple, it can be hard to determine. My hon. Friend the Member for Cleethorpes (Shona McIsaac) mentioned some of the difficulties that older people in her constituency had experienced in that regard. 
 The Bill sets out to avoid opportunities for short-term speculative gain. We therefore provide that the leaseholder must have held a long lease for at least two years before they can exercise a right to a longer lease. That provides a sensible balance between the need to avoid opportunities for short-term speculative gain and the need to put an end to the unfair exclusion of certain leaseholders from the exercise of their rights. We have been through the arguments before, so I shall not labour them further, and I ask the hon. Gentleman to withdraw the amendment.

William Cash: The problem is that the residence conditions should be retained. As the Minister suggested, the objections to their removal are much the same as those that we discussed under clause 117. With regard to sections 5 and 6 of the 1993 Act, the so-called anti-speculation measures do not apply to the individual right to acquire a new lease. I refer the Minister to section 39(3)(a) of the 1993 Act in that respect. The proposed introduction of a two-year qualifying membership period will prevent only short-term speculative gains, whereas a residence condition would prevent all undesirable speculation.
 Enfranchisement is a right that should be given to home owners and should not extend to absentee lessees or speculators. If the residence condition is thought likely to cause difficulties in its present form, it could be addressed as we described.
 Question put, That the amendment be made:—
The Committee divided: Ayes 7, Noes 10.

Question accordingly negatived. 
 Clause 127 ordered to stand part of the Bill.

Clause 128 - Qualifying leases

Sally Keeble: I beg to move amendment No. 101, in page 63, line 31, leave out '1' and insert '2'.
 I hope that the amendment will not delay the Committee, as it merely corrects a technical error, in the form of an incorrect reference to chapter 1 of the 1993 Act. The clause should refer to chapter 2. 
 Amendment agreed to. 
 Clause 128, as amended, ordered to stand part of the Bill. 
 Clauses 129 to 131 ordered to stand part of the Bill.

Clause 132 - Landlord's Share of Marriage Value

Question proposed, That the clause stand part of the Bill.

William Cash: This clause raises the contentious question of marriage value, and several representations have been made on the subject in the other place. I oppose the clause—at any rate until I have heard what the Minister has to say. I propose perhaps deferring the issue to Report, as it may require further consideration depending on the way in which the arguments are developed.
 Our idea is that the clause should be left out, to leave paragraph 4(1) of schedule 13 to the 1993 Act as it is, so that the freeholder's share of marriage value would be such proportion of it 
''as is determined by agreement between the landlord and the tenant or, in default of agreement, as is determined by a leasehold valuation tribunal''
or 50 per cent. of the marriage value—whichever is the greater. 
 That would not involve depriving the landlord of anything in excess of the 50 per cent. to which he might be entitled on a determination under present law. I appreciate that all the relevant matters are extremely contentious. They also arise under clauses 124 and 125, and we may table further amendments on Report. In the meantime I should like to hear what the Minister has to say.

Sally Keeble: The hon. Gentleman is right that this is one of the great debating points on the arrangements for leasehold. The hon. Members for Torbay (Mr. Sanders) and for Guildford (Sue Doughty) have indicated that they may also oppose clauses 132 and 133, but I suspect that their motives are different from those of the hon. Member for Stone (Mr. Cash). If we asked members of the Committee, it is possible that they would all suggest a different formulation for what should happen to marriage values. Perhaps the hon. Members for Torbay and for Guildford want it to be abolished completely. I shall go through the arguments with some care, and will return at the end to the specific proposals made by the hon. Member for Stone, although they are not worded in an amendment.
 Marriage value is the most controversial aspect of the current arrangements for both lease renewal and the enfranchisement of flats and houses. Leaseholder groups have long campaigned for marriage value to be excluded from the purchase price altogether—I know that some members of the Committee favour that approach. We have considered those representations very carefully. However, we have concluded that it would be wrong to agree to remove marriage value from the determination of the enfranchisement price. 
 One of the principles to which the Government have held throughout the Bill, and which is a point of dispute with some leaseholder groups, is that the freeholder's stake in the property has been recognised. That said, there are certainly defects in the current provisions that need to be corrected. It would be helpful if I took this opportunity to explain the Government's thinking at some length, not least because the hon. Member for Stone has indicated that he wants to return to the matter. 
 It is important to put marriage value into its historical context. The story begins with houses. Leaseholders of lower value houses were first given the right to buy their freeholds by the Leasehold Reform Act 1967. At that time, the leases of many Victorian houses were approaching their end. That was seen as a particular problem in South Wales, which faced significant economic difficulties at that time. That situation, coupled with a rather different view of property rights from the one that prevails today, led to an Act that gave leaseholders in houses of relatively modest rateable value the right to buy their freehold on 
 extremely favourable terms. Later legislation extended the right to leaseholders of higher value houses, but on a less advantageous valuation basis. 
 We do not propose to interfere at this late stage with the long-established rights of leaseholders of lower value houses, which have had an effect on the prices that many such leaseholders have paid for the leases on their homes since the 1967 Act came into force. However, we do not think that it would be right to extend those valuation arrangements to any other categories of leaseholder. 
 The right to enfranchise is a right of compulsory purchase, as is the right to a longer lease on a flat.

Shona McIsaac: Does my hon. Friend agree—I posed this question to the hon. Member for Stone earlier—that if the landlord is voluntarily disposing of leases, that is not a compulsory purchase, and that we should make that distinction in this debate on marriage value, because marriage value does not apply when there is a voluntary disposal?

Sally Keeble: We have consistently described the right to enfranchise as a right of compulsory purchase because of the restricted categories of people who can exercise it. I cannot see that there is much possibility of going beyond that scope. To exercise the right to enfranchise, leaseholders do not have to show that the freeholder is at fault in any way. Therefore, it is only fair that he should be paid the same amount as he would have received from selling the freehold or a longer lease to the leaseholder or leaseholders voluntarily. When leaseholders buy their freehold or renew their lease, they obtain a benefit that no other purchaser would. When leaseholders of flats enfranchise, they can grant themselves new 999-year leases without having to pay for them. Similarly, a leaseholder who buys the freehold of a house is no longer subject to a lease. The value of the extra benefit is the marriage value.
 If existing leases still have, say, 80 or more years left to run, new longer leases will be worth little more than the existing ones, so any marriage value will be insignificant. That is reflected in our proposals. If the unexpired term were relatively short, say 50 years, the difference would be substantial. The same is true for leasehold houses. 
 In a sale between willing parties in which the unexpired term of the lease was not long, it would follow that the leaseholders would be prepared to pay additional money for that extra benefit. However, they certainly would not offer the whole amount of the marriage value. They would be well aware that they represented the freeholder's only chance of getting a higher price than he would from an ordinary purchaser. In practice, a sale would be agreed only if the parties agreed to split the difference, and if the parties were equally willing and eager the split would be 50:50. The freeholder would finish up with a rather higher price than he would have received from another purchaser, but—I must emphasise this—the leaseholders would still end up with an asset that was worth more than they paid for it.
 People often ask how marriage value can be said to apply to the right to buy a longer lease.

Shona McIsaac: I am intrigued by what my hon. Friend said about the leaseholder ending up with an asset that was worth more than it was when they originally purchased it. The evidence in my constituency of Cleethorpes and in neighbouring Grimsby is that there is no difference in the prices of leasehold and freehold property. Therefore, there is no financial advantage in someone buying a leasehold property. Would she care to comment on that?

Sally Keeble: I believe that the properties of some of my hon. Friend's constituents are governed by different legislation, because they are old. The position is different. It is fair to say that if a leaseholder enfranchises, depending on the length of time left in the lease—we have also taken that into account in our provisions—he ends up with added value as a result of his purchase. That is reflected in the marriage value.

Adrian Sanders: The Minister forgets a rather important point. The leaseholder bought the property when he became a leaseholder in the first place.

Sally Keeble: This is one of the substantive points. Leasehold and freehold are different tenures. Some people do not like leasehold, and there is great evidence of real difficulties with it. We have heard some examples of those difficulties, and we will hear a lot more about them from hon. Members whose constituencies include a large number of leasehold properties. However, we must start from where we are, not from where we would like to be. The fact is that leasehold and freehold are different. When someone buys a leasehold, it is galling for him to have to accept that he is buying a long lease. That is different from buying freehold. Apart from introducing a new form of commonhold that gets around problems of leasehold—a new form that we believe is the tenure of the future—the purpose of the Bill is to deal with the injustices of leasehold and the difficulties of freehold.
 We have to start by recognising what leasehold is. The hon. Member for Torbay has missed the point. When someone buys a long lease on a property, it is different from buying a freehold on it. When buying a longer lease, there is no joining or marriage of the two interests. The term does not have quite the same meaning in the lease renewal context—indeed, in that context, marriage value is something of a misnomer. The meaning of marriage value in lease renewal is quite different from its meaning under enfranchisement. As defined in the Act, in broad summary, it is the difference between the aggregate values of the landlord's interest and that of the tenant as they are before the new lease is granted and as they will be after it is granted. 
 The notion that in some way extra value is created by the transaction is common to both cases. In lease extension as in enfranchisement, any amount of marriage value will be extremely small if the unexpired term of the existing lease is still long. Similarly, as under the right to enfranchise, the split of marriage 
 value has been much argued about in individual cases; in most cases, the LVT has decided that it should be shared equally between the parties. For lease renewals and enfranchisement cases, our intentions are the same: that the leaseholder should be required to pay no more and no less for the compulsory acquisition of a new lease than he or she would pay in a similar transaction between the same, but this time equally willing, parties. 
 That is the principle behind marriage value, which the Government believe is sound. I shall now talk about our proposals to simplify the valuation basis, which will deal with some of the points that the hon. Member for Stone mentioned in his suggestions for valuation. He will see that our proposals are simpler and more workable. 
 The 1993 Act provisions, which were based on the principles that I have described, were defective in two ways. First, they provided that the freeholder's share could never be less than 50 per cent., but that it could be more. That was unfair—why should it be possible for the freeholder but not the leaseholder to argue for a larger share? It also led to argument, sometimes protracted and expensive, between the parties about what the shares should be. The hon. Gentleman wanted a period of discussion about the ultimate valuation as well. The 1993 Act encouraged the parties into further arguments about the amount of marriage value, even when it was obvious that there would be almost none. The Government want to retain the principle of the existing provisions, but to eliminate the scope for wasteful argument both about the amount of marriage value in cases where it will be negligible, and about how it should be shared between the parties. 
 In practice, all but a few—highly unusual—cases, LVT decisions have split marriage value equally between the parties, but that has not stopped landlords arguing for a greater share. The hon. Gentleman proposed that the LVT should make a decision: the record of the LVT is one of equal splits, so we think that marriage value should be split 50:50 in all cases. Clause 124 makes such provision for the purposes of collective enfranchisement, and clauses 132 and 142 make equivalent provision for lease renewals and enfranchisement of leasehold houses. Clause 125 provides that, when the unexpired terms of each of the leases held by participating members of a right-to-enfranchise company exceed 80 years, no marriage value is payable. Clauses 133 and 143 make equivalent provision for lease renewals and enfranchisement of houses. 
 We have heard different views on both the principle of the cut-off and the threshold at which it should be set. Our objective is to prevent costly arguments that are disproportionate to the sums at issue. The principle of a cut-off is consistent with that objective, and we are committed to it. Whatever cut-off is chosen, it seems likely that some will argue that it should be raised or lowered, and an element of compromise is needed. I believe that an argument was made in another place about a figure of 90 per cent.
 We accept that LVTs have sometimes awarded an element of marriage value when leases have 90 or more years unexpired, however that would normally be a relatively small sum. We need to consider another factor. Professionals with long experience in the field made representations pointing out that before the 1993 Act came into force, flats with very long leases did not command a measurably higher price than those with unexpired leases of 80 years, indicating that at that time, leaseholders placed no additional value on the ability to obtain a new longer lease. 
 It was a key principle of the 1993 Act that valuations for collective enfranchisement and lease renewal should be made on the assumption that the Act did not exist. In practice, however, the Act's operation has distorted the market so that transactions have taken place that include an element of marriage value where the unexpired terms of the existing leases exceed 80 years. That effect has been amplified by the fact that some experienced and well resourced landlords, particularly on the great London estates, have in such transactions brought to bear the best professional advice that money can buy, often leaving the leaseholders somewhat outgunned. The Government's proposals would restore the original ''no 1993 Act'' context to the valuation process. 
 I have given the Committee the basic outline of the Government's position. I do not know whether the hon. Members for Stone, for Torbay or for Guildford want to take the matter further. The clause strikes a fair balance between the various rights and arguments surrounding marriage values. I hope that the Committee will agree to it standing part.

William Cash: No one could say that the Minister has not given us a full and comprehensive account of the Government's view. This matter has been extensively discussed in the other place; none the less, it requires further consideration. I do not propose to press the clause—or, by implication, the other clauses to which I have referred—to a Division. We can return to the matter on Report if necessary, by which time we will have weighed up the Minister's arguments.
 Question put and agreed to. 
 Clause 132 ordered to stand part of the Bill. 
 Clause 133 ordered to stand part of the Bill.

Clause 134 - Amendments of 1967 Act

Question proposed, That the clause stand part of the Bill.

Shona McIsaac: We have come to the part of the Bill in which I have a particular interest. Cleethorpes and neighbouring Grimsby are leasehold towns. I am pleased that the Government are amending the Leasehold Reform Act 1967, because many of the amendments will benefit residents in my constituency.
 However, we must debate some aspects of chapter 4, particularly forfeiture insurance, purchase price and marriage values. The Committee should realise their importance.
 Of approximately 2 million leasehold properties in Britain, about half are leasehold houses. We spent a lot of time discussing flats, but it is just as important to discuss the issues as they relate to leasehold houses, even though fewer amendments affect them. I said in a previous sitting that an estimated 21,000 house leaseholders live in Grimsby and Cleethorpes. I shall not call them tenants—I have never agreed with the use that term. 
 Those people believe that they are homeowners because they have a mortgage; they feel that they have purchased their homes. They call themselves homeowners in the census. However, when it comes to calculating care costs, elderly people who want to go into residential homes are certainly regarded as homeowners, not tenants. I find it shocking that we are only now beginning to tackle some of the serious issues that affect house leaseholders, and some of the injustices arising from the 1967 Act. 
 I am indebted to one of my constituents, Dr. Alan Dowling, a local historian who has brought to my attention the fact that the problems of house leaseholders in Grimsby and Cleethorpes were first raised in Parliament in the 1880s. That led in 1883 to the setting up of the Grimsby branch of the Leasehold Enfranchisement Association, to campaign for leasehold land to be made freehold. Nothing came of the campaign because it did not suit the major landowners, but here I am, 120 years after the issues were first raised in Parliament. I hope that our debates on chapter 4 will enable me to redress some of the wrongs that have been fought over for so long and that affect 21,000 houses in Grimsby and Cleethorpes. 
 We must not underestimate the problem. The average cost of enfranchisement in my constituency is £10,000; although that figure is plucked out of thin air, it means that just a few landowners are sitting on £21 million. In the big building period of the early 20th century there were seven major landowners in Grimsby and Cleethorpes, one of which, Sidney Sussex college of the university of Cambridge, owned 5,000 leaseholds in my constituency. It is only fair to say that the college disposed of those assets some time ago, but that example shows what we are dealing with. 
 These days, because of voluntary disposals by landowners such as Sidney Sussex college, many of the relevant freeholders are offshore companies. Tracking them down can be difficult, and some extraordinary abuses go on. When we debate the proposals to amend the 1967 act, I intend to detail some harrowing constituency cases. I shall put the case forcefully, because the interests of 21,000 homeowners are at stake.

John Taylor: I support the hon. Member for Cleethorpes, who expressed her arguments well. Her constituency and mine probably share few characteristics, but I understand her views, and if I had the honour to be the Member of Parliament for Cleethorpes I would have tried to make
 the same arguments as well as she has done. We have had evidence, mainly from places to the north of where I come from, of exploitation in connection with reversion. As the hon. Member for Burnley (Mr. Pike) and others made clear on Second Reading, reversion on very long leases—even 999-year leases—can be exploited if there are covenants for replacement of insurance and things of that nature.
 Although there is not the same stress in my area as there is in the northern towns of England, we have been left with the residual consequences of the failures of the 1967 Act. As the Committee may know, I was a young lawyer at the time that Act was passed. In those days I did not have my own practice; I did what the partners in the firm told me to do, and they told me to do conveyancing. With the onset of the 1967 enfranchisements, people in my part of the world, predominantly with 99-year leases, sought to buy their freeholds. It became clear very quickly that whereas the right to acquire was as plain as a pikestaff, the value—or, more specifically, an appropriate price at which the leaseholder might buy the freehold—was, to say the least, a grey area. It became the ground for argument and litigation. 
 In those days, the only forum that could unlock the dispute for the leaseholder—whose right was clear, but whose price was not—was the Lands Tribunal. Although many people fought shy of the costs of contesting the matter in that forum, in my area, predictably, there were those who were not frightened by those costs: they fought, they got their valuation, and they acquired. Those trailblazers who were not deterred by the cost of going to the Lands Tribunal eventually served the purpose of clearing the way for others. They might have done that unwittingly—they acted in their own interests—but such was result of their actions. 
 After the Lands Tribunal had delivered a sufficient body of decisions, the state of the market was clear to leaseholder and to freehold reversioner alike. When there were enough decisions to give a guide, the disputation ceased. That it stopped was not because the Act—or, rather, the politicians who produced it—had been politically courageous enough to introduce a price mechanism. They had not. They ducked the issue and citizens had to dispute their way to a body of decisions that gave clear guidance. 
 That is the story of the 1967 Act, which is now rather a long way upstream. Now I—no longer a young lawyer, but the Member of Parliament for Solihull—am experiencing a nightmare revisited. Mr. Chairman, we are going to do it again. I am not being a party politician. I am appealing to worthy members of all parties when I say that I am old enough to know why the 1967 Act was deficient: it did not contain a price mechanism or a sufficiently defined formula to make things clear to our citizens who, when considering the most important asset they will own in their lives, rightly aspire to move up from leasehold to freehold. That is a very big deal for those people—it involves their home and their life savings.
 We have a huge responsibility: we legislators are in a position to make the law. We can make it precise and clear, to the profound convenience of our constituents who live out there and to whom we are responsible—or we can leave it as a dog's breakfast and stand condemned as another generation of cowardly politicians who would not get to grips with the issue. We must grasp it now. My constituents are probably up for another fight in the Lands Tribunal. I venture to suggest that the constituents of the hon. Member for Cleethorpes are not.

Shona McIsaac: The hon. Gentleman is quite right. Such is the nature of the property and the community in Grimsby and Cleethorpes that my constituents do not litigate—either they simply cave in, or they lose their homes.

John Taylor: The hon. Lady makes the point elegantly and seriously on behalf of her constituents.
 My message is fairly clear. The 1967 Act gave a right, clearly, but did nothing about valuation. The Bill runs the risk of doing exactly the same. I am old enough and ugly enough and have no parliamentary ambition other than to serve as a responsible legislator. I claim in aid my modest experience as a politician and my 22 years as a solicitor. That I am obviously much nearer the end of my career than the beginning that makes it even more important that I should say this. In such a situation, I run the risk of saying nothing about a flaw in the Bill that I know about. I have, however, averted that risk, because I do know and I am telling the Committee. 
 In the last sitting, the Minister told me that her officials had examined the possibility of finding a formulation that would provide guidance on price and value, but had found the problem too difficult. They found it too difficult in 1967 as well. I will not be fobbed off with that argument twice. I do not accept it. I appeal again to the Minister—tell your officials what to do. You are—I am sorry, I lost the correct pronoun, such is the extent of my concern. I address my remarks to you, Mr. Illsley—the hon. Lady is a Minister of the Crown and is in a position to instruct her officials. These might be her words: ''I am not satisfied that you cannot find a formula. You must find one. Go back and think again.'' 
 There is time to find a formula. The Conservative party will not mock a raft of Government amendments tabled on Report. I make it my personal responsibility to ensure that my party will not mock a rewriting of the provisions. We will not say, ''You are doing this on the hoof by tabling a raft of amendments on Report.'' We will say, ''Thank you for reconsidering. The new Labour Government are bigger than we thought they were. We thought that you were just our political opponents but we can now see that you are something more than that. You have acquired some maturity in Government and you are able to think again.'' 
 If the Government do that, they will rise above politics and into statecraft. I wonder whether new Labour is up to statecraft, even if it is very, very good at presentation. This might be a test. If the 
 Government rise above politics, I shall be on my feet on Report to congratulate them. However, I remain unsure. I am not content, and I look to the Minister. In 18 years I have disobeyed the Conservative Whip only three times, and that was only because I did not understand it on those occasions. However, I certainly understand this matter. If a price mechanism is not introduced on Report, although I have only one vote in the House, it will be used against the Bill on Third Reading.

Brian Iddon: I rise to put on the record my strong objections to the concept of leasehold, which is the cause of so many problems. I said on Second Reading that it should be banned, and I repeat that today.
 In my constituency, leasehold has created immense difficulties. At the end of the 19th century and the beginning of the 20th century, houses were built on the cheap to feed cheap labour into the factories. The factory owners did not want to own the houses, so they got people to build them for them. They were built brick on end, with inner and outer skins touching, and with common attics that are regarded today as a clear fire hazard. Then, to get rid of them as cheaply as possible, they were sold without the back streets—and often without the front streets—made up. Today, my constituency has mile upon mile of unmade and unadopted back streets; the result of leasehold, they cause havoc. 
 Since 1954, there have been 16 pieces of legislation in which the complexities and the unfairness of leasehold could have been tackled. Here we are again with an ideal opportunity to do something about leasehold to make it fairer—although I would prefer to abolish it. I welcome the introduction of the concept of commonhold. We have been debating the complexities that leasehold has created, one of which is marriage value. I object to that concept, too, and would abolish it. 
 As well as being built cheaply and sold without the streets being made up, the houses in my constituency were sold cheaply with ground rents in the leases. In those days those rents were worth a lot of money—between £1.50 and £2.50. They are worthless today, which gives rise to ground rent grazing, which my hon. Friend the Member for Brent, North (Mr. Gardiner) has spoken about very ably in several debates in the House. That practice has caused the insurance problems that several Members have mentioned. The Compton Group and others are giving some of my constituents a hard time about insurance, and I am pleased to note that the Government have tabled an amendment on that issue, which we will debate later. There is also the question of forfeiture, on which I have tabled an amendment and which we will deal with in detail later. 
 Leaseholders have the right to buy their freehold, but many of my constituents have told me how difficult that is. A certain Mr. Patel recently told me of how he had been paying ground rent to an agent; the agent wanted £200 plus VAT just to provide him with the 
 price that we would have to pay to buy out the freehold. Mr. Patel asked the agent who the freeholder is, because he did not have a clue, but the agent would not tell him. I found out who the freeholder is, and both Mr. Patel and I have written to them, but we cannot get a price out of them; the agent has told me that they do not like to sell land in patchwork quilt fashion. Despite the fact that legislation enables people to buy freehold, some of my constituents have been obstructed at every turn and charged huge sums of money. 
 Finally, there is the question of fees. People go round my constituency looking to see who has had a conservatory or other extension stuck on their house. A letter arrives, saying, ''You have not approached us, as the freeholder, for planning permission.'' The recipients thought they had planning permission because they had got it from the local authority and the building controller had, where necessary, seen the work done, but the letter tells them that they do not have permission. The fees that freeholders charge for such permission—I am glad to say that the Bill deals with fees as well—are in the region of £500. 
 One young couple in my constituency were attempting to sell a house with a conservatory. When the potential purchaser carried out a search, it was found that the conservatory stood on land owned by three separate freeholders, all of whom wanted to cash in on giving retrospective planning permission before the transaction could legally take place. Leasehold causes many similar problems. Life should be simplified for householders. We will say much more about such matters in later debates.

Bill Wiggin: I have listened with interest to the passion expressed this morning. I was concerned, because as a Committee member I am listening impartially to debates as the Bill progresses. I was alarmed when the hon. Member for Cleethorpes said that the provisions would cost £21 million. The figure is £210 million—

Shona McIsaac: I forgot the zero.

Bill Wiggin: What a terrible mistake. That emphasises the magnitude and seriousness of this element of the Bill. As my hon. Friend the Member for Solihull (Mr. Taylor) rightly said to me earlier, this is not a moment for frivolity. I hope that, as our proceedings continue, we shall not make mistakes or miss the obvious own goal—

Graham Stringer: Score an own goal?

Bill Wiggin: Yes—and if there is a crucial element missing from the Bill, I hope that we shall make up the deficit.

Sally Keeble: The debate has shown how strong hon. Members' views are on leasehold. Some of those views may not have been expressed so clearly before, but my hon. Friend the Member for Cleethorpes has forcefully raised the issue of leaseholders in her area on the Floor of the House, as has my hon. Friend the Member for Great Grimsby (Mr. Mitchell), who is her
 neighbour. No one doubts the depth of her concern about her constituents' position, especially about the circumstances affecting older people in leasehold houses, who form a distinctive section of the community.
 We come late in the Bill to a discussion of houses. I emphasise for my hon. Friends' constituents, and for those of other hon. Members who have many leasehold houses in their constituencies, that the relative length of the clauses dealing with houses and flats is no reflection on the size of concerns about leasehold houses or the Government's commitment to ensuring that problems are dealt with. For the benefit of my hon. Friends, I have drawn up a short list of the provisions in the Bill that apply to flats and houses to show that we have considered their respective positions with equal seriousness. 
 The right to manage in chapter 1 applies to flats, but not to houses. If one occupies a house, it is generally assumed that one manages it oneself and that there is no need to involve a right-to-manage company. Chapter 2 does not apply to houses, but chapter 4 makes similar provisions, although they are not exactly the same. The clauses relating to the exercise of right and purchase price do not apply to houses; nor does chapter 3, which deals specifically with leases for tenants of flats. However, chapter 4 applies solely to houses and brings legislation for houses in line with that for flats in most respects. The provisions in chapter 5 also apply to houses but may in some instances be of limited value. The provisions relating to ground rent largely apply to leaseholders of houses, although they apply to flats as well. There is ample provision throughout the Bill to ensure that proper provisions are made on issues that are of concern to leaseholders of houses. 
 The hon. Member for Solihull again argued about the need for a price mechanism, which is a matter that we have dealt with previously. The hon. Gentleman feels that I need to become a statesperson rather than a politician on this matter, but I think that I would have to be a magician. It is hard to see how any formula for prices and valuation would capture and crystallise a volatile and contentious market. Whatever the Conservative Whip says, his party will probably have to recognise that it has strong feelings about price mechanisms. Historically, those have been substantially different from the views on this side.

Andrew Selous: The Minister spoke of a formula. However, we could also be talking about a mechanism; an independent means of valuation. I take the Minister's point that a formula might not always come up with the right price in a changing property market. However, would she ask her officials to consider a mechanism for independent valuation on an agreed basis that could give some certainty?

Sally Keeble: I think that I used both words. I was talking about the formula, and I will show that there is a mechanism, which we have tried to simplify. The Opposition amendments have tended to favour the
 freeholder. Some of the most strongly put views from Labour Members have concerned the problems experienced by leaseholders. We need a proper mechanism to resolve differences when it comes to deciding prices. I suspect that there would be more heated arguments about a formula than there would be about anything else. We have a mechanism—through the LVTs—and we believe that we have simplified it.

John Taylor: I think that the Minister must give way.

Sally Keeble: No, I am going to finish this point. The hon. Gentleman has twice mentioned the matter of valuation and has indicated that he intends to return to it on Report.
 We have also included various methods of protection in the form of prescribed notices—I apologise if I have mentioned that before—and we intend to table an amendment on Report to limit the power of the Lands Tribunal as far as costs are concerned. That will deal with some of the difficulties that the hon. Gentleman has identified. I recognise the point—made repeatedly by hon. Member for Solihull and by my hon. Friend the Member for Cleethorpes, who has been vociferous about it—that although people can be given a right, they cannot always exercise it. 
 Elderly people who are in leasehold houses are particularly vulnerable to pressure. They tend not to rush to the law, and they often find it difficult to exercise their rights. They are not, therefore, always in the best position to protect their financial interests. There are some measures in the Bill to deal with that, and I give an absolute undertaking, which the hon. Member for Leominster (Mr. Wiggin) requested, to consider very carefully other proposals that come forward during the debate on the Bill. That is the point of scrutiny. 
 I believe that many of the constituents of my hon. Friend the Member for Bolton, South-East (Dr. Iddon) and those of my hon. Friend the Member for Cleethorpes experience similar problems. Those are a different matter from the arguments around leasehold in London and the south-east. I take the point about the purposes for which some of the properties were constructed, the state of some of them, the standard of the building and the standard of the houses at the front and the rear. Representations about that are frequently made to me by virtue of my other responsibilities—it is a vexed question. 
 The hon. Gentleman's aim is the abolition of leasehold, and that position is supported by a number of Committee Members and many interest groups outside this place. However, it is not covered in the Bill, because it is accepted that leasehold is an existing form of tenure. The purpose of the Bill is to improve the way in which it operates, not to bring the provisions to an end at a stroke. I hope that our debates on leasehold provisions will prove to be stronger than those on commonhold. We need to consider how the Bill will operate, and to make sure that it will do what the Government intend. We want to deal with some of the anomalies and abuses, and to 
 make sure that people in leasehold properties, be they flats or houses, are better able to exercise their rights. We want greater justice for leaseholders and freeholders.

John Taylor: I dispute the Minister's historic stereotype. It is like something out of a pantomime—Labour were for tenants, and the Tories were for landlords. What nonsense! Even if it was once true, that time is past. Who enabled council house tenants to own their own homes? I suggest that we call it quits, and put the matter behind us. However, if she wants to use the old idiom—that I am the one who wants the price mechanism, and that the Tories are normally for free markets—

Sally Keeble: May I correct the hon. Gentleman? I did not say that. I was not talking about people's attitudes. I said that most of the Opposition amendments have been protective of freeholders' rights. That was a specific point.

John Taylor: The point that I want to make clear—does the Minister want it in the old idiom?—is that if I, as a Tory, am prepared to be interventionist about a price mechanism, even if it is arbitrary and even if it sometimes produces a slightly capricious result, why is not the Minister? Labour's deep loyalty is usually to those who are least able to deal with markets, who get buffeted and pushed around by them and find them difficult to control. It should be a good Labour instinct to protect people in difficult markets when the person on the other side is in a stronger position—and especially when there is no other shop to go to.
 I appeal to the hon. Member for Cleethorpes. If the Bill has no price mechanism, there will not be many new freeholders in Cleethorpes; but there will be some very rich lawyers in Solihull.

William Cash: No one can say we have not had an interesting and stimulating exchange of views. A number of matters have been raised. We have already touched on marriage value, and I said that we shall return to that matter on Report. We have heard about the substantial problems faced by the hon. Member for Cleethorpes, and the strongly worded and deeply felt arguments put by my hon. Friend the Member for Solihull. Abolishing leasehold altogether may be a consequence of the move towards commonhold, but I am not entirely sure that a Bill that abolished leasehold would go down well on either side of the political divide, nor that it would be in the national interest. It is one thing to say that one does not like the way something works, but another to say that the remedy is execution.

Shona McIsaac: I would not say execute. It is more like humanely put down.

William Cash: The Cash bolt was invented by one of my forebears, so I hope that the hon. Lady understands that we have made our contribution to humane disposal in the past.
 We have to keep a sense of perspective. The subject of forfeiture was raised and I have a letter about it. No doubt we shall come back to it in due course. It is extremely wise of us to bear in mind the famous expression that appears, I think, in Maine's ''Ancient Law'' stating that justice is to be found in the interstices of procedure. That is a rather pompous way of putting it, but if we want a proper mechanism or formula, to lay down the criteria is a different matter from applying them in the procedures available in the appropriate tribunal, whether that is a court or the LVT. We shall come to some amendments that I have tabled on the mechanics of the LVT and the procedures that apply to it. 
 Issues were raised on Second Reading about the clear misuse of provisions contained in leases for the purposes of exploiting people. Such misuse must be wrong. It deserves careful consideration. That is not to say that it follows that a system of forfeiture can ultimately lead to a person losing their premises when it would be clear, by any standards, that he could not expect to remain there and continue to break every covenant in the place. There are thresholds and senses of perspective that we must bring into our proceedings. 
 I have been impressed by the quality of the arguments that I have heard today from both sides of the Committee, but we must weigh up each matter to reflect the proper balance of interests of the freeholder and leaseholder. I repudiate what the Minister said about our simply making arguments that favour the freeholder. That is not the case, and I seem to remember that the Government were reluctant to make any significant move on the question of unanimity. That remains an outstanding issue to which we will return on Report, and I think that we will return to matters under the clause as well.

John Taylor: Even as my hon. Friend anticipates our return to certain matters, will he remember the old adage that it is not so important that the law be fair but that it be certain?

William Cash: Indeed, and I am sure that my hon. Friend is right, although the more certain that the law is in the minds of those who make propositions, the more possible it is that the judge will take a contrary view, so that the law becomes certain only when the judgment is given. Therefore it is essential for us to get the balance right, and not to throw the baby out with the bath water. We must arrive at some sensible balance that will enable the tribunal or court to come to the right decision, with the appropriate procedures.
 There would be some certainty when a decision was made, but my hon. Friend will also remember that degrees of certainty can be shifted by superior courts. What is certain on day one when the court of first instance makes its decision suddenly becomes uncertain when it reaches the Court of Appeal. Thereafter, it might be subject to the House of Lords if necessary and, these days, to courts in foreign lands. That is the nearest that I will go to adjudicating on such matters in my present capacity.
 Important provisions on human rights have come to our attention in our proceedings. The concept is extremely elastic, with much good in it and a great deal of uncertainty. However, I am beginning to stray into subjects dangerous for you, Mr. Illsley, and for me. We will consider the matters carefully. I propose that we do so on Report in the hope that the Minister will bear in mind that it was for the interests of the House, given the debate on Second Reading, that we have considered them in Committee, but that they should go back to the Floor of the House if necessary so that they can be discussed by the House as a whole.

Sally Keeble: May I formally move that the clause stand part of the Bill? It is fairly technical.

Eric Illsley: The Chairman moves that clauses stand part of the Bill, but he is pleased to get the Committee to do it.
 Question put and agreed to. 
 Clause 134 ordered to stand part of the Bill.

Clause 135 - Abolition of residence test

Sally Keeble: I beg to move amendment No. 102, in page 65, line 20, at end insert—
 '(1ZB) Where a flat forming part of a house is let to a person who is a qualifying tenant of the flat for the purposes of Chapter 1 or 2 of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993 (c.28), a tenant of the house does not have any right under this Part of this Act unless, at the relevant time, he has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes)—
(a) for the last two years; or
(b) for periods amounting to two years in the last ten years.''.'.

Eric Illsley: With this it will be convenient to take Government amendments Nos. 103 to 106.

Sally Keeble: The amendment is intended to address concerns raised in another place about the enfranchisement of head leases. For a head lease of a building that can be regarded as a house and parts of which have been sublet on long leases, changes to the Bill would enable a non-resident head lessee, with possibly only a nominal interest in the building, to enfranchise the whole building under the Leasehold Reform Act 1967. Such a head lessee would stand to make a windfall profit at the expense of the landlord if under-lessees subsequently collectively enfranchised or acquired new leases under the Leasehold Reform, Housing and Urban Development Act 1993. It was agreed in another place that we would table an appropriate amendment in this House.
 The amendment closes a loophole that made it possible for people to realise windfall profits. It provides that, where part of a house is sublet to a person who is a qualifying tenant for the purposes of the 1993 Act, the house cannot be enfranchised under the 1967 Act unless the head lessee has occupied the house, or any part of it, for the previous two years or periods totalling two years in the past 10. That will 
 prevent any opportunity for non-resident head lessees to enfranchise and make windfall gains from subsequent enfranchisement or lease renewal under the 1993 Act. It will retain the existing right for head lessees to enfranchise in such circumstances. 
 Amendments Nos. 103 to 106 make consequential changes. I ask the Committee to endorse them.

William Cash: I heard what the Minister said. At this juncture, I am not disposed to dispute the argument. We will consider the matter, but so far as I am concerned we will allow the amendments to pass for the time being.
 Amendment agreed to. 
 Question proposed, That the clause, as amended, stand part of the Bill.

Shona McIsaac: I welcome the abolition of the residence test in clause 135. As I said in an earlier discussion, I have had not necessarily evidence of abuse, but instances of my constituents being disadvantaged. One of the most severe cases was that of an 84-year-old resident. Her health was failing and she was keen to enfranchise, because she knew that she might shortly die and she understood that it was important to secure the freehold for her family. However, after that elderly lady had had a number of strokes and had gone into long-term care, her family were told by the freeholder that she no longer met the residence test and could not enfranchise. Sadly, the lady died before enfranchisement could occur, so as the rules stand her family had no right to continue with the purchase of the freehold. Will the Minister confirm that the abolition of the residence test will prevent such abuse?

Sally Keeble: I welcome my hon. Friend's support for the clause, which serves a dual purpose. It will close the loophole that barred people who would normally be entitled to enfranchise from doing so, and the loophole that allowed certain people to become head lessees and then to realise a windfall profit.
 Question put and agreed to. 
 Clause 135, as amended, ordered to stand part of the Bill.

Clause 136 - Reduction of qualifying period as tenant etc

William Cash: I beg to move amendment No. 50, in page 66, line 11, at end insert—
 '(1C) This Part of this Act shall not have effect to confer any right on the tenant of a house where—
(i) the house is for the time being let as two or more flats or units; and
(ii) the tenancy is superior to those held by the other tenants,
unless, at the relevant time, the tenant has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes)—
(a) for the last two years; or
(b) for periods amounting to two years in the last 10 years.'.
 The clause introduces a requirement for the leaseholder to have held the lease for at least two years before exercising the right to enfranchise or to extend the lease. It also cuts out lease owners from the rights of their tenancy unless they can pass a residence test. That would involve their occupying the house as their only or main residence for the past two years or periods amounting to at least two years in the past 10. The purpose of amending clause 136 is to prevent that part of the Act from having the effect of conferring any right on the tenant of a house when 
''the house is for the time being let as two or more flats or units; and the tenancy is superior to those held by the other tenants, unless, at the relevant time, the tenant has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes) for the last two years; or for periods amounting to two years in the last 10 years.'.'' 
That seems to be a perfectly reasonable proposal, given the requirements of clause 136, and I shall be grateful to hear what the Minister has to say about it.

Sally Keeble: We have just agreed to amendment No. 102, which does virtually that. The hon. Gentleman said that he wanted to return to the issue on Report, having looked through all the provisions of the Government amendment. I would, therefore, ask him to withdraw this amendment and, if he wishes to return to the issue, to do so on Report, as he said he would.
 The amendment would prevent the head lessee of a household from enfranchising if the house has been converted into flats that have been let to long leaseholders who qualify for the right to enfranchise collectively. It would achieve exactly the same as the amendment that we have just agreed to. The hon. Gentleman might like to consider the detail and come back on Report if he wants to do so.

William Cash: I am happy to do so. I thought that it was important at least to ask the question, but I agree with the Minister. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 136 ordered to stand part of the Bill.

Clause 137 - Exclusion of certain business tenancies

Amendments made: Nos. 103, in page 66, line 19, leave out '(1ZA)' and insert '(1ZB)'. 
 No. 104, in page 66, line 21, leave out '(1ZB)' and insert '(1ZC)'. 
 No. 105, in page 66, line 44, leave out '(1ZC)' and insert '(1ZD)'. 
 No. 106, in page 66, line 47, leave out '(1ZB)' and insert '(1ZC)'.—[Ms Keeble.] 
 Clause 137, as amended, ordered to stand part of the Bill. 
 Clause 138 ordered to stand part of the Bill.

Clause 139 - Personal representatives

Shona McIsaac: I beg to move amendment No. 89, in page 67, line 33, leave out 'one year' and insert 'five years'.
 The amendment is about family rights and personal representatives. It has always been the case that the family cannot inherit the right to enfranchise on the death of the leaseholder. Often the children who grew up in the house regard it as the family home, much as their parents did. That fact has caused a great deal of anguish in my constituency, so I welcome the fact that personal representatives—that is, family members—will have the right to enfranchise on the death of a family member. 
 The amendment would increase the period from one year to five. I believe that one year is too short a time. Such families suffer grief and are often distraught when a relative passes away. It can often take time to find out whether or not the property is leasehold. Before choosing whether to enfranchise, probate or letters of administration may have to be granted. If the family wish to move into that home, they may first have to sell their own property, and that could be another leasehold property. One year is too short a time to deal with such complex matters. 
 I am still trying to deal with one such case. The family have been struggling for about six years, following the death of a family member, to sort out the leasehold and freehold issues relating to a particular house. I want to increase the period allowed for consideration of such issues, and I hope that the Government will look favourably on my amendment. 
 I want to share with the Committee some of the harrowing cases that have occurred since the 1967 Act, in which families have discovered the extent of their losses—

Bill Wiggin: I am grateful to the hon. Lady for giving way before proceeding with her story. Does she foresee that, in an area with many elderly residents, her measure would allow a lot of leasehold properties to stand empty while people made a decision about whether or not to proceed with the purchase of the freehold? That would create empty areas that would very likely become run-down or vandalised. What is her view on that?

Shona McIsaac: As leasehold law stands, many areas of Britain are already run-down and vandalised because of the nature of this form of housing tenure. When someone passes away and the family do not have a right to enfranchise, the house is already standing empty, and in a slow market will stand empty for some time. I do not envisage that the process would take up to five years, but the one-year period is far too short for people to deal with all the affairs relating to a close relative passing away. They will have to deal with all the legal issues surrounding that, particularly if the person died in difficult circumstances or in a
 hospital, making reports necessary. The financing must be sorted out and people may have to get a loan to buy the freehold. The one-year period is too short.
 The deficiencies of the 1967 Act were brought into sharp relief by the case that I am about to describe. An old gentleman who lived in a house in my own street in Cleethorpes passed away, and in his will left his house to his stepson. The stepson initially had no idea that the house was a leasehold property, and the old gentleman had always said, ''When I pass away, you can come out of your council-rented property and this house will be here for you.'' 
 As the tenant had not enfranchised, the price finally quoted to the stepson was £30,000 to purchase the freehold. He did not have a right in law. When we tracked down the landowners, they said, ''We give in, we'll sell it to you.'' The family could not afford to raise the £30,000 to buy a property that they had assumed was the family home anyway. The house was sold on the open market, on another 99-year lease—

Bill Wiggin: How much did it sell for?

Shona McIsaac: The price was £25,000—I believe that there was some argument with the vendors. As a conscientious Member of Parliament, I knocked on the door of the new residents to tell them to buy the freehold pretty damn quick. The landlord was not terribly happy about that, but I did not want to see another family go through the trauma that the first family went through.
 The old gentleman passed away in January. When I was trying to assist the family, we knew that the lease was due to run out in April. The landowners did not even reply with their figure of £30,000 until 15 March. All of us would probably find it difficult to raise £30,000 in a fortnight, and in a part of the country such as Cleethorpe incomes are very low and there is much poverty. 
 There are many other such cases where someone has passed away and the family home has been lost. That has happened on so many occasions in my constituency that I welcome the provisions on the rights of personal representatives. However, I do not want the one-year period to mean that normal people find out that although we have given them the right, they will not be able to exercise it because the period allowed is too short. I hope that the Minister gives the amendment serious consideration. 
 I shall not detain the Committee further with other cases. I felt that the one from my street was among the most serious. I shall continue to speak out about leasehold issues, because every time I am at home and I see that house, it reminds me of what that family had to go through because of the deficiencies of the 1967 Act.

Sally Keeble: My hon. Friends' amendment would extend to five years the period in which personal representatives can exercise the right to enfranchise or extend the lease of a house. My hon. Friend made a persuasive case for an extension and again illustrated
 how the law can apply unfairly to people in her area. She has made that case strongly and consistently for some time.
 The main purpose of clause 139 is to remedy the position in which some personal representatives find themselves when they take over responsibility for a leasehold house that has a short remaining lease and find themselves unable to sell the remaining lease—or at least get a reasonable price for it. Some landlords have taken unfair advantage of personal representatives who find themselves in that situation, as my hon. Friend demonstrated very well. We recognise that it can take some time for personal representatives to deal with the affairs of a deceased person, especially if the person was a close relative, and we want to ensure that a reasonable period of time is allowed within which they can make a claim for the freehold or an extended lease. 
 Although we accept that determining such time periods invariably involves a degree of arbitrary consideration, in this case we have to bear in mind that the Bill already proposes that a lease on a house need only be held for two years to qualify for enfranchisement or lease extension. We are not therefore convinced that increasing the period beyond two years would serve any useful purpose. However, I am grateful to my hon. Friends for raising the issue and am happy to consider extending the period from one to two years by tabling a Government amendment on Report. At the same time, and in the interests of consistency, I will consider amending clause 129(2), which is the equivalent clause specifying the time period within which personal representatives need to make a claim for renewing a lease of a flat. 
 Those changes have been proposed in light of my hon. Friend's arguments and the strong case that she has made for some time. I hope that my hon. Friends are reassured and ask them to withdraw the amendment.

Shona McIsaac: I am grateful to the Minister for her comments. In the Bill on leasehold reform that I introduced under the ten-minute rule a few years ago, one of my main demands was for the recognition of the rights of personal representatives and family, so I am pleased that that provision is in the Bill.
 The one-year period disappointed me. However, given the Opposition's suggestion that five years might lead to properties being left empty and that the Minister has assured me that she will introduce a Government amendment on Report to increase the period to two years, which would make things easier for families in difficult circumstances—

Andrew Selous: I refer to the hon. Lady's remarks about the freeholder being slow to provide the information. Does she think that the requirements to ensure that freeholders provide information to leaseholders, so that they can decide whether to exercise the option, are adequate?

Shona McIsaac: My comment related to changing the valuation date to the date of the freeholder's counter-notice. When the freeholder is delaying deliberately, the date should remain that when the
 leaseholder chooses to enfranchise. That was my point. Increasing the period by one year would help with difficult situations, when leaseholders need to be tracked down. In the worst case of which I have heard, the leaseholder has not been tracked down for more than 10 years. It would not be right to change the Bill to deal with such exceptional cases, however.
 I am happy to accept my hon. Friend the Minister's assurances that she will introduce an amendment on Report to make things easier for families in difficult circumstances.

William Cash: We are making some progress. I agree with the hon. Member for Cleethorpes and I also agree with my hon. Friend the Member for Leominster about making the period too long. Will the Minister consider the possible bar in the mechanics of the provision of information by the freeholder?
 All hon. Members have an interest in ensuring that these proposals work. We continue to run into technical obstacles but, as we proceed, we think of ways to make the Bill more workable. That is in the interests of leaseholders and freeholders. I have no doubt that huge numbers of leaseholders will benefit from provisions of this sort in the interim period, irrespective of whether those who would like the system to be abolished altogether achieve their objective.

Adrian Sanders: The Minister has proposed a happy compromise, which we shall support on Report, but I wonder why it had not been thought through beforehand. If one can enfranchise after two years' residence, why make the period one year in the case of inheritance? The solution seems obvious now, but that is due to the nature of Standing Committees. I congratulate the hon. Member for Cleethorpes on prompting the Government in that direction and graciously accept what the Minister proposed. We shall support the amendment on Report.

Shona McIsaac: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 139 ordered to stand part of the Bill. 
 Clause 140 ordered to stand part of the Bill.

Clause 141 - Exclusion of shared ownership leases

Question proposed, That the clause stand part of the Bill.

William Cash: The clause raises the question of whether marriage value could have been left out of the Bill. We may be able to settle that in the context of our previous discussions. Assuming that we have the opportunity, we may return to the matter on Report.
 We have maintained a brisk pace in the Committee. We have had regard to the importance of dealing with some matters, but have proceeded on the basis that we would have a proper discussion on Report. No doubt, Mr. Illsley, you and others have marked out the areas of concern, and I am sure that the Minister takes the point. I am simply glancing at the Whip but I feel that, as we have made the most of available opportunities, it would be invidious if the matters that we wanted to discuss on Report were programmed out of existence. It would be in the interests of all parties and the House as a whole to ensure that that does not happen. We want to make the system work as well as possible and we are dealing with the matters responsibly. I hope that we will have an opportunity to make our points and that these matters will not be crammed into an hour and a half on Report.

Sally Keeble: The clause deals with the exclusion of shared ownership leases. The two following clauses deal with marriage value. However, I take the hon. Gentleman's point that he wants to return to the matter.
 Clause 141 ordered to stand part of the Bill. 
 Clauses 142 and 143 ordered to stand part of the Bill.

Clause 144 - Purchase price for enfranchisement during lease extension

Shona McIsaac: I beg to move amendment No. 90, in page 69, line 22, at end insert—
 '(1A) In section 9 of the 1967 Act, after subsection (2) insert—
 ''(2A) The landlord shall provide the tenant with notice in writing of the basis on which the price payable for the house and premises has been calculated.''.'.
 The amendment stands in my name and that of my hon. Friend the Member for Bolton, South-East. As the hon. Member for Solihull said, the purchase price of the lease on enfranchisement is a serious issue. The amendment would oblige freeholders to show the enfranchising leaseholder how they decided on the purchase price. 
 The hon. Member for Solihull referred to formulas. Under existing guidelines, the freeholder may tell residents of properties in Cleethorpes and Grimsby that are worth £20,000 to £25,000 on the open market, that the freehold is for sale for £10,000. That seems to be the average.

John Taylor: In the sort of case to which she has referred, what would be a typical annual ground rent?

Shona McIsaac: It is £2 a year. With a £2 a year ground rent and a long lease, such a purchase price is clearly an abuse, which is made possible by the complexities of the rules and guidelines.
 The Leasehold Advisory Service document, ''Houses: qualification and evaluation for enfranchisement'', states: 
''the valuation process required by the law is complicated so it is often difficult to form a clear view at the beginning of the amount.''
It goes on to say: 
''because the basic right has been extended over the years by various amendments made to the 1967 Act, rules for calculating the price are somewhat complicated.'' 
That is an understatement if ever there was one. The rules are far more than complicated. One needs a degree in maths or statistics to work through them. 
 A document from the Department of the Environment, Transport and the Regions, as was, entitled, ''Leasehold Houses; your right to buy the freehold of your house or extend your lease'', uses the word ''formula'' not in relation to the purchase price but to the section of the Act under which people qualify to enfranchise. It is important to get it right. It is 
 ''R = P x I over 1 -(1 + I) x -T''.

John Taylor: What is ''I''?

Shona McIsaac: ''I'' is, in this instance, 0.06 which, I understand, comes from various tables. There are rules to guide one if one wants to work it through—P is the purchase price paid when the lease was granted, T is the number of years granted by the lease and, if R is less than £25,000 one can enfranchise, but it is very complicated. Some freeholders abuse the system and charge what they like, because it is so complex and the guidelines on purchase price are so difficult to understand. I do not even believe that all solicitors follow how it works. Residents certainly do not understand.
 If, on enfranchising, certain information had to be provided—for example, whether original or special valuation basis was used in the calculations—some of the abuses would be avoided. The majority of the low-value, terraced properties in north-east Lincolnshire should be purchased on original valuation basis; the residents should be paying the cheapest price. Some of the figures that I have been sharing demonstrate that they are not getting those at all; they are being charged way above what the rules suggest.

John Taylor: In an endeavour to be helpful, I suggest that if the freehold reversion is an asset producing an income of £2 and the prevailing interest rate happens to be 4 per cent., then the capitalised value £50.

Shona McIsaac: Absolutely. That demonstrates the nature of the abuse, but perhaps I am being unfair in calling it that. Residents in my area and in many other constituencies—

Brian Iddon: Does my hon. Friend find it strange that in her part of the world, the lease period is 99 years, yet in mine it is 999 years? Should there not be legislation to make a uniform lease period across the country? Otherwise, in this respect, my hon. Friend's constituency will be very unfairly treated compared with mine.

Shona McIsaac: I would like some consistency throughout the country. When leasehold houses were first built, the period was up to the landowner to decide. It would be difficult to bring all leases into one pot and agree on a common period. In my hon. Friend's constituency, with 999-year leases, we find the
 ground rent grazers and the insurance abuses. I get a little of that, but not as much. With 99-year leases, people know that they will have windfall gains within the next few years.
 I want a provision in the Bill that will oblige freeholders to tell enfranchising leaseholders exactly how they arrive at their prices—including giving details of the ground rent and the rateable value and working through the mathematics. As soon as the freeholders have to do that, my constituents will stop being quoted figures of £10,000, £15,000 and £20,000 when they should be offered the very lowest prices. Such a requirement would give a good solicitor who understands the rules a chance to challenge the figures, because he could see what he was dealing with. 
 On purchase price, there is no difference in my area between leasehold and freehold property. There is no advantage to residents. I shall go through some of the prices that are being quoted. The hon. Member for Solihull, with his mathematical genius, may be able to help me. A small terraced house in a street called Park View has three years left on the lease. The residents have been told in writing that it is £10,000 plus fees. I should also like the Bill to provide that, as part of the process of giving the leaseholder information, there should be some explanation of that figure. At the moment fees are just added to the purchase price and some of them are extraordinarily high.

John Taylor: Will the hon. Lady concede that, whereas there is no width of market in the reversion—there is only one reversion—there are always alternative sources of professional advice.

Shona McIsaac: I agree, but I am talking not about the leaseholder's solicitor but about the fact that when one is enfranchising one has to pay one's own fees and those of the freeholder. That is not fair or just. The hon. Gentleman mentioned council house tenants earlier. They did not have to pay the council's fees, so far as I know, in a compulsory purchase situation, so I do not see why the leaseholders should have to pay the fees of the landowner.
 The ground rent of the property to which I was referring was £2.

Bill Wiggin: I am sympathetic to what the hon. Lady is trying to achieve in her amendment. However, her emphasis has wandered somewhat. In the case of the three years left to run, had those leaseholders decided not to continue the lease for a further period and waited until it expired, they would admittedly be in a vulnerable position, whether or not they were forced to repurchase their house, but they would not be liable for fees. One is buying something that one did not have before and therefore paying a fee for it. I do not necessarily accept that that is an equitable way to do business, but it is something that is done and understood. Before we go too far down the road of claiming social injustice, that is something that people know about, and they have an option to avoid it by waiting until the lease expires.

Shona McIsaac: I totally disagree with the hon. Gentleman.
 It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
Adjourned till this day at half-past Four o'clock.